Credit Builder Loan – What Is a Credit-Builder Loan & How Does it Work?

If you have no credit history at all or poor credit, a credit builder loan can help you establish a good record of trustworthy financial behavior without using a credit card. So, what is a Credit builder loan? It is a type of installment loan made to assist people who do not have a credit history or a poor credit build credit. This type of loan does not require good credit for approval. But it does require that you have enough or good income to make payments.

Credit Builder Loan - What Is a Credit-Builder Loan & How Does it Work?

A credit builder loan is very different from a traditional loan because, with it, you can easily make fixed payments to lenders and then have access to the loan at the end of the loan period. Credit builder loans are called so many names such as Starting over loans or fresh start loans. They are not widely advertised and are offered by smaller institutions such as community banks and credit unions.

How does a credit builder loan work? A credit builder loan works in a very easy and simple way. When you get it, the money agreed will be transferred into the bank account held by the lender. Then you will make monthly interest payments and principal (reported to the credit bureaus} for a period of around six to twenty-four months. When the loan is paid, you will now get the money from the bank account.  The best feature of the credit builder loan is that as you are building a nest, you also building credit.

How to Manage a Credit Builder Loan

Managing a credit builder loan is very easy and does not require much. However, if you don’t know how to go about it follow the below guidelines.

  • Pick the right credit builder.  Look for the best one with the payment you can afford comfortably.  Stretching your budget will only raise the risk of missing a payment and that will damage your score. I recommend that you choose a manageable loan amount and the term must not be longer than 24 month
  • Make the payments on time. If you pay the loan on time as agreed, you will build excellent data on your credit reports. But a payment that is more than a month late will also go on your reports and can hurt your score seriously.
  • Monitor your credit score.  Use a personal finance website to get a free credit score. You can choose Nerdwallet. This is because it will help update your score weekly and also watch the overall trend of your score.
  • Decide on what to do with your loan proceeds, plus interest. At the end of the loan period, you get the money and likely and good credit score. If possible, you can use the money as an emergency fund. Having a few hundred saved can insulate you from unforeseen expenses that might lead to a missed payment or debt and score damage.

 Where to find a credit builder loan

Where can I get a credit builder loan? If you are reading this article, you do not need to worry about this. After a good and deep research, I have come up with places that you can easily go to for credit builder loans.  However, you still need to check around if the below near you do not meets your requirement.

  • Community banks or credit unions
  • Online lenders
  • Lending circles
  • CDIFs

They are various community banks and online lenders that focus on assisting people to rebuild and build their credits. It is very good to search around and compare for the best one to go for and make sure it is secure.

How can to get a credit builder loan?

To get a credit builder loan there are steps you need to follow. And that is why I have listed these steps below for your convenience. All you just need to do is follow these steps to obtain a credit builder that suits you.

  • Find the financial institution offering the credit builder loans like the one stated above
  • Decide on the amount you want to use and borrow
  •  Shop and compare among different safe lenders
  • Apply for the loan by providing your details such as your name, address,  and others

You can rest assured that bad credits won’t affect you at all. Once you get approved and the loan is granted, like I mentioned above you will make payments until the loan is repaid in full, after which the funds will be given to you. Also,, the cost of it depends on the lender which is why it is very important to shop around for the Best Credit builder loan companies